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Description
Flashcards by Asayena Viengmany, updated more than 1 year ago
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Created by Asayena Viengmany
almost 7 years ago
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| Question | Answer |
| Budget Constraint | All possible consumption combinations of goods that someone can afford when ALL income is spent |
| Opportunity Set | All possible consumption combinations of goods that doesn't use up entire income (Burgers and Bus Tickets) |
| Opportunity cost | measures cost of what is given up in exchange of for something else Next Best Alternative |
| Opportunity Cost of a $2 burger is ____. | Four 50 cent bus tickets "Next Best Alternative" |
| Marginal Analysis | comparing benefits and costs of choosing a little more or a little less of a good; decisions on the margin |
| Law of Diminishing Marginal Utility (happiness and satisfaction of banana) | Consuming more of a good or service, the utility (satisfaction) we get from additional good or service tends to become smaller than what we received from earlier units |
| Production Possibility Frontier (PPF) | diagram that shows productively efficient combinations of two products that an economy can produce given the resources available |
| Law of Diminishing (Marginal) Returns (Education and Healthcare) | as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments decline (increase education becomes more costly when decreasing more healthcare) |
| Q: PPF curved because of the ______. | Law of Diminishing (Marginal) Returns |
| Productive Efficiency | impossible to produce more of one good or service without decreasing another good or service (maximum points on PPF curve) |
| Allocative Efficiency | mix of goods being produced represents the mix that society most desires |
| Absolute Advantage | country can produce more of a good than competitors using the same amount of resources |
| Comparative Advantage "Good at Everything Neighbor while you're Bad at Everything" | Country produces good at lower cost in terms of other goods; lower opportunity cost; still teams up with other countries to make production |
| Is Trade an Absolute Advantage or Comparative Advantage? | Comparative Advantage |
| Positive Statement | describes the world as is |
| Normative Statement | describes how the world SHOULD be, how agents should behave in economy |
| What's the comparative advantage of Canada? MS AB Canada 2000 1000 USA 3000 6000 | opp cost MS AB Canada 1000/2000= 0.5 2000/1000=2 USA 6000/3000=2 3000/6000=0.5 comparative cost of Canada= MS |
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